If you have a huge debt problem, you might want to start thinking about using debt consolidation to get rid of it. According to the Federal Reserve, Americans seem to have every intention to dive deeper into debt. Early in 2019, the outstanding debt of consumers exceeded $4 trillion. Apparently, the past holiday season added a huge amount to the debt – with credit card spending adding more than $41 billion to the overall consumer debt.
Among the other debts that continue to threaten the financial future of Americans include mortgage and student loans. The danger in all of these does not just lie in the growing amount of debt. It is also in the multiple credit accounts that individuals owe.
This is the main reason why debt consolidation is the perfect option for consumers right now. If you are struggling with a huge debt problem, you need to opt for debt consolidation.
Signs your huge debt problem needs consolidation
Of course, choosing a debt relief program is not something that you should do lightly. You need to get to know if it is the perfect fit based on your financial situation. Sometimes, people hesitate to consolidate debt because they do not understand what it can do for them.
To help you make an informed decision, here are the specific signs that your huge debt problem should be consolidated to help you achieve complete financial freedom.
You are always late
It does not matter the reason why you have late debt payments. It is a sure sign that you need debt consolidation. Sometimes, people fail to pay off their loans because it is too much for their monthly budget. Consolidating it will help you restructure your payments so it becomes more affordable. Of course, there are times when people are just too confused because they have so many debts to keep track of. If this is the case, debt consolidation can also take care of this huge debt problem. It can simplify your payments by combining it under one account.
Your debt-to-income ratio is high
Also known as the DTI, this is the relationship between your gross income and monthly debt payments. The ideal debt-to-income ratio is 30%. That means, if you are earning $5,000 a monthly, your debt payments should not go beyond $1,500. The lower it is, the more that debt will not be a threat to your financial security. If your DTI is higher, you need to act fast and be aggressive in paying it off. This is where debt consolidation can help. It can help make your debt payments more structured – giving you a better chance of paying it all off.
You find it hard to save
Your savings can do a lot of positive things for your finances. It can help you feel more financially secure. It can support you when you are going through a tough financial situation. In case something happens to you or a loved one, you do not have to borrow money to get yourself out of it. You can use your savings for that. But if your current debt payments are making it hard to save up, that is an indication that you need a debt relief program. It is a sign that you are probably spending more than what your income can handle. That can be dangerous in the long run.
Your credit cards are maxed out
Another sign of a huge debt problem that will get better after consolidation is maxed out credit cards. If you have maxed out your cards, that means you have a lot of debts accumulating. You want to make sure that it will not get any worse. Consolidating your multiple cards will do you well and help you improve your financial situation. That is just the effect of debt consolidation. It gives you the chance to start over when it comes to paying off your debts. While you still have to pay everything that you owe, the new repayment plan will make it easier to accomplish.
Why consolidating your debt problems is the best option
You might be wondering – why should you opt for debt consolidation? There are other debt relief options out there. Why should you single out consolidating debts?
There are three reasons why this might be the best option for you to get out of debt.
It keeps the situation from being too stressful
Reports reveal that a huge debt problem can have grave consequences even in your physical and mental health. In fact, 38% of people with credit card debts said that it affected their happiness negatively. This is caused by the stress that usually accompanies debt. So if you have a lot of debt payments to take care of, you will feel the strain in your life.
Since this debt combines your multiple debts into one, your monthly payments will be easier. While you will still be required to pay off all your debts, the simple repayment structure will make it less stressful. Instead of monitoring a lot of debt, you only focus on one. It will not take too much effort. That means you can put some of your focus on other things like increasing your income.
It makes your debts more affordable
When you consolidate, you are putting your multiple debts into a new credit account. This means you can restructure your debt payments based on what is more affordable for you. If you need a lower monthly payment to have more room in your budget plan, that can be arranged. You can also save money because you can look for a low-interest loan. This will give you a lot of savings – especially if you are planning to consolidate your credit card debts.
It does not harm your credit score
Finally, when you consolidate your huge debt problem, you can also take care of your credit score. You have to remember that you will be required to pay for everything that you owe. At least, for the principal balance. That means every payment that you make will have a positive effect on your credit report. It can really help give your credit score a boost. When you complete all your debt payments, you will not just enjoy debt freedom. You will also end up with a higher credit score. This will open a lot of financial opportunities for you.